Many recycled plastics are the polypropylene (PP)/poly(ethylene terephthalate) (PET) blends with PET as the minor component. The modification of such kinds of PP/PET blends for higher performance is essential as PP and PET are not thermodynamically compatible. In this study, the elastomer, SEBS-g-MAH, and the inorganics, halloysite nanotubes (HNTs) are chosen as the modifiers for the modification of a model PP/PET blend (90/10). The mechanical performance of such blend is optimized by the selective dispersion of the nanotubular HNTs into the interfacial region of the blends via a two-step process. Compared with the control one, the overall mechanical properties of the blend are substantially improved. The crystallization of PP in the blend is also facilitated by the selective dispersion of HNTs and the folding surface free energy is substantially increased. The substantially improved mechanical performance is interpreted according to the formation of the unique morphology. This study provides new insight in improving the performance of polymer blends via selectively dispersing the nanosized inorganics in the blend. (c) 2012 Wiley Periodicals, Inc. J. Appl. Polym. Sci., 2013